A Guide to Car Finance for Business Owners

With a range of options available, read our guide to secure the best finance and car for your firm…

Generally, it’s not difficult for you to obtain finance when looking to acquire cars for your business – a cash deposit and reasonable credit score should be enough to satisfy most dealers.

However, the number of options available can be overwhelming and choosing the type that best suits your business is vital. Mistakes could mean years of headaches and mounting bills.

This article covers:

How to find the right car finance for you

How to navigate the dealership process

What kinds of finance are available

How do I work out what car finance I want?

Your first step should be working out what kind of finance you need. Being clear about the kind of car you need and its purpose will be a major factor in how good the eventual deal is.

When considering what kind of car you want, primarily your considerations should be whether you want a standard mid-range car for your business’ use (hire-purchase agreements are a good option here), just the use of some reliable cars for a limited period (consider leasing as an option), or a smart executive car for your own use. If this is the case it might be more sensible to buy one for yourself on a personal contract rather than through your own business.

The next thing you need to consider is how you want to pay. If you want to nothing at all up front you will want a monthly repayment arrangement. Normally, there is a deposit of around 10% of the value of the car but this might be higher if your credit record is poor or your firm has just started up. If you want to pay most of the price of the car you will have lower repayments in the long run, but you need to be absolutely sure your cashflow can sustain the short-term outlay. Finally, if you want to use regular, predictable installments hire-purchase agreements are a good option. You should also consider a servicing and maintenance contract so your outgoings on vehicles are entirely predictable.

What kinds of finance are there?

The type of finance arrangement you go for depends on whether you plan to own the car at the end or not.

You should choose hire-purchase if you do want to own the car. In this arrangement you pay the car off in instalments – until you have paid it off in full it remains the property of the finance company. Financing costs will be calculated based on the cost of the car plus interest and an additional charge for administration. Bear in mind that your liability under a hire-purchase arrangement might affect your ability to borrow if it is large enough.

Alternatively, you could go for a lease of you do not want to own the vehicle at the end – a key advantage of a lease arrangement is the fact that the entire cost of the car can be written off as an expense, saving you tax. You will normally make the same monthly payment throughout the life of the lease, and you might get a share of the proceeds when the car is sold – check terms and conditions carefully.

Finally, you could choose contract hire/operating lease which includes servicing and maintenance in the monthly cost – if you don’t like surprises, a contract hire arrangement is for you. Remember to check exactly what damage is covered, whether any types of damage are excluded and whether the arrangement provides for additional services like a replacement car during servicing.

Where can I buy a car from?

Once you’ve decided what kind of car you want and what finance arrangement to go for you have a number of options when looking to obtain a vehicle.

The first is to buy direct from the manufacturer. This is not normally an option unless you are buying in bulk. You could join a group buying service to get such bulk discounts.

Buying new or second hand from a dealer is the go-to option for business buying, Choosing the right dealer is crucial – see below for more on this.

Buying second-hand from a private seller can be the cheapest option but most finance companies will not approve the purchase as there is little protection for the buyer.

How do I choose the right car dealer?

There are several factors to consider if you decide to purchase from a car dealership: cost, convenience and the dealer’s standing.

If the dealer is providing the finance along with the car, check the terms carefully, looking at the whole deal. Also make sure to do your research and find out how the cost price compares with the price offered to you – calculate how much you’ll end up paying if paying in instalments.

If you’re buying a car on a hire-purchase arrangement, check the rate of interest carefully. Although a business is not actually obliged to provide you with the APR if you are a limited company, most will – be very careful about ones that don’t. It’s also a good idea to get quotes from a variety of dealers and compare them to find out the best deal. Remember that haggling is always an option.

Think about what would happen if something went wrong with the car – would you have to somehow get it to the other end of the country for servicing? Similarly, if you have a service and maintenance agreement, how far away is the nearest service garage?

Finally, check online with others who have used the dealer about their reputation. Again, if you have a service and maintenance contract, check the dealer’s reputation

When should I use a fleet management company?

If you have a large fleet of vehicles, managing them can be tough time-consuming work. If this is the case, you could look into whether buying from a fleet management company might work for you.

Although this may seem like an additional expense, the benefits fleet management firms offer can substantially outweigh the costs in the long term.

Fleet management companies are aimed at larger companies so most mainstream fleet managers will only take on fleets of 100 vehicles or more. Generally, three to five year contracts are standard in fleet management companies. Make sure the contracts contain reasonable break clauses so you can pull out if the service isn’t up to scratch.

They offer a range of services including: Sourcing new vehicles and arranging finance, analysing the efficiency and capacity of your fleet, analysing fuel usage, arranging repairs and service, selling old vehicles Dealing with accidents and breakdowns and coming up with a replacement policy.

If you are a smaller company, many contract-hire arrangements can offer similar terms to dedicated fleet management firms.

What do I do when things go wrong?

You may think the car remains the property of the finance provider on most arrangements until the final payment has been made, any problems that arise are up to them.

Unfortunately, most of the time this isn’t the case and you will have to deal with issues yourself.

If the car is damaged or faulty It is the responsibility of the dealer to repair or replace it, which is why you should always seek a warranty and avoid shady dealers. If you are an unincorporated business, you might be able to get your finance company to take on some of the burden under the Consumer Credit Act.

If the car isn’t what you expected, unfortunately this is the end of the story. When you sign up to a finance arrangement you have committed to a binding contract.

You should also make sure you are insured and the insurance company has details of who will be driving the car in case of an accident.

If you default on your loan the finance company might come and take the car, depending on the terms of the arrangement you agreed. Especially if you are close to paying the car off, you might be able to come to an arrangement.

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